With the increase in situations when employees are paying fees to their physicians or providers for special or preferred services, issues arise as to whether these expenses are reimbursable by a Health FSA. These fees come in different forms, from basic retainer fees, access fees, or "hold the spot" fees (where payment is made but no medical service or treatment is actually rendered) to "concierge" fees, where employees pay significant sums in order to receive preferred services and benefits with a particular physician or practice. Typically, none of these expenses are covered in whole or in part by insurance. Since IRS rules do not allow automatic reimbursement of these types of program fees, and since employees will have questions as they seek to determine whether they may be reimbursed from tax-free FSA funds, this memo attempts to
summarize the relevant rules and considerations for participants.
IRS rules are very strict that eligible expenses may only be reimbursed by an FSA plan after the expense has been incurred. FSA reimbursement is based on the date of service, not the date of payment. Furthermore, to be reimbursable, a particular medical service or treatment must have a direct link to an actual charge. Where payment is made but no service is incurred, or where a service is incurred but there is no corresponding charge for the service, that payment or service may not be reimbursed by a Health FSA.
Also, participants should keep in mind that when plans follow IRS regulations for reimbursement, participants are being protected from any risk of noncompliance in their individual or family tax returns upon IRS audit or review.
Documentation: For valid reimbursement, IRS rules require that a participant provide documentation indicating: (1) type of service incurred; (2) date of service incurred; and (3) amount of charge for service incurred. For the different types of preferred service programs, participants should keep in mind that unless all three of the required items are present in the documentation (usually a provider invoice, statement, or summary of services), the expense will not be reimbursable.
Since FSAs cannot reimburse expenses paid in advance of services, none of these fees are reimbursable at the time of payment. If any expenses are to be reimbursable, they would be reimbursable only after one or more services have actually been rendered.
(1) "Hold the spot" fees (retainer fees, access fees) are not reimbursable, since payment is made but no service is incurred before or after payment.
(2) MD/VIP fees and similar programs are generally not reimbursable. In these situations, payment is usually made on an annual basis in return for preferred services (favorable appointment booking, shorter wait times, special services) regardless of the actual services that are later rendered. Our best interpretation is that these services do not meet IRS requirements for FSA reimbursement. These programs operate like insurance, and the program fees most closely resemble individual insurance premiums not eligible for reimbursement by a Health FSA.
(3) For programs that do not fit cleanly within either of the above two categories, those programs will have to be analyzed on a case-by-case basis, with the presumption that the expense is not reimbursable unless documentation shows otherwise.
Where a specific expense can easily be attributed to a specific service based on documentation from the provider, that service may be reimbursable. As an example, for a program where an individual paid up front and then later incurred specific (eligible) service, if the individual submits a statement from the provider allocating a value to the service, then that expense may be reimbursable.
However, where an individual paid up front and incurred a later expense, but the documentation does not allocate a value to the service, the service would not be reimbursable. As an example, if an individual pays $3,000 on January 1st a preferred service program, and then has a consult with the doctor on May 1, how much of the $3,000 is reimbursable after May 1? There is no clear guidance on that issue. We are not in a position to be responsible for valuation of services, so any value attributed to the service would have to be clear on the face of the provider documentation. Otherwise, the expense is not reimbursable.
Finally, for an individual who paid up front but never incurred a service during the plan year, the advance payment would not be reimbursable.
We at ProBenefits are doing our best to evaluate these programs and adhere to existing IRS rules and guidance. It must be noted that many of these programs are not reimbursable, and individuals should take note in making plans and calculating their annual elections during open enrollment.